International news

Cyprus bailout comes at a cost to bank depositors

AndriaCheng

Reuters

A man withdraws money from an automated teller machine at a branch of Bank of Cyprus, in Athens on Saturday. The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros, but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider run on savings.

NEW YORK (MarketWatch) — The euro zone and the International Monetary Fund have decided to give 10 billion euros ($13 billion) to bail out the Mediterranean island of Cyprus, but it’s coming at a cost to depositors in Cypriot banks, according to media reports on Saturday.

Depositors with more than 100,000 euros will be taxed at 9.9%, while those with less at 6.75% to raise a total of about 6 billion euros for the island nation that’s near bankruptcy, The Wall Street Journal reported.

It would be the first time in the euro zone’s five-year old financial crisis that depositors would lose money.

Reuters

Cyprus Finance Minister Michael Sarris.

“I wish I wasn’t the minister to do this,” Reuters quoted the country’s finance minister, Michael Sarris, as saying after he came out of 10 hours of late-night talks in Brussels. “Much more money could have been lost in a bankruptcy of the banking system or indeed of the country.”

Sarris, who took office just two weeks ago, said measures have been taken so that electronic transfers can’t take effect before banks reopen on Tuesday after a public holiday on Monday, the Journal reported, adding the Cypriot Parliament would adopt the taxes over the weekend.

Cyprus, which represents just 0.2% of the euro zone’s economy, asked for financial help in June. Greece, Ireland, Portugal and Spain were other countries that have turned to Euro zone for financial help, Reuters reported.

While IMF is likely to contribute to the aid, Russia, which has close ties with the island nation, also will likely help by extending a loan of 2.5 billion euros by five years to 2021 and reducing the interest rate, Reuters reported.

Angry depositors were seen on Saturday lining up early to withdraw money from the cash machines, while co-op credit societies normally open on Saturdays remained closed in the coastal town of Larnaca, Reuters reported.

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